Budget 2013 impact: Increased tax on mobiles to hit sales, 3G rollout

Its more recently launched “Rex” line, priced between Rs 3,900 and Rs 5,800, is also likely to take a hit in small towns as the company will be compelled to pass on the burden of higher excise duty, said Asim Warsi, vice-president (mobility business) at Samsung India.

MUMBAI/KOLKATA/DELHI: The Budget will affect telephony costs in rural India by around 20 per cent, setting penetration and internet adoption back by around 1.5 years, analysts and industry experts said. The Union Budget will hit rural pockets two-fold, the first by increased price of smartphones and second by the estimated higher cost of spectrum. “The change will impact most new handset models, but is likely to have a downward effect on sales of handsets priced between Rs 2,000 and Rs 3,000 since this is the range where buyers are most price-sensitive,” said Mohammad Chowdhury, Leader Telecom, PwC India.

The Union Budget 2013-14 has proposed a 6 per cent duty on mobile phones priced over Rs 2,000, up from the existing 1 per cent duty. Vendors said this will affect prices of smartphones.

Smartphone maker Samsung said higher excise duty on cellphones will deal a body blow to sales of its popular Samsung “Star” and “Champ” series (priced between Rs 5,000 and Rs 6,000), which have been doing well in rural markets. Its more recently launched “Rex” line, priced between Rs 3,900 and Rs 5,800, is also likely to take a hit in small towns as the company will be compelled to pass on the burden of higher excise duty, said Asim Warsi, vice-president (mobility business) at Samsung India.

“We foresee a sharp decline in sales since prices are bound to rise and the key issue is affordability.” This in turn will dampen telecom companies’ urgency to roll out internet-ready networks in smaller service areas, said the CEO of a top telecom services company, asking not to be named.

“The uptake of 3G in India is already slow because of low per capita income. Increasing handset prices will make it slower and result in a delayed deployment of 3G networks.” He also citied the mobility boom in India that was created by the sharp fall in instrument prices and voice calls in the 2002-03 era. The reverse, he said, would become true for data users. While the Budget Speech ignored income expectations from spectrum sale, the planned receipts reflected around Rs 40,000 crore from the sector.

Analysts estimated about half that amount will come from recurring revenue share from the sector and the remaining from airwave sale. A Goldman Sachs note said the target would be achieved if the government “at the set reserve price sells all targeted 900/1800 MHz spectrum at a reserve price roughly 45 per cent lower than the recently failed auction’s reserve price”.

The report’s premise remains that the 900MHz band is twice as valuable as 1800MHz. However, the CEO citied earlier said even if the government lowers the 900MHz band value by 1.3 times that of 1800MHz, which is commensurate with capital expenditure, for renewal there will be an added cost of Rs 10,000 crore for companies like Bharti Airtel, Vodafone and Idea Cellular.

This would then translate into an additional amortized cost of Rs 500 crore a year, equivalent of an increase of Rs 0.1-0.2 per minute in call rates, or 15-20 per cent. Analysts said, since the higher spectrum price is in major cities, the price of calling will rise only in cities.

“Not much tariff impact can be expected at the rural level, since the brunt of spectrum costs are incurred in Metros and Circle A,” said Chowdhury of PWC. The CEO, however, disagreed. He said the pricing differential exists already. If a hike is required, companies will affect a uniform percentage across territory. So, while calling will be cheaper in rural than urban, it will be 15 per cent higher for everyone.

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